Democratic Legislature will re-evaluate tax cuts

The newly elected Legislature won’t be sworn in for another nine days, but significant policy discussions and imminent budgetary issues are likely to color a difficult and contentious session.

Democrats, who will control both the House and Senate after sweeping electoral victories, have not announced specifics regarding new legislation and policies. However, after an election of campaigning against Republican-initiated tax cuts and a health insurance overhaul, the new majority has already indicated that both will be debated next year.

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Incoming Speaker of the House Mark Eves, D-North Berwick, has indicated that unfunded Republican-initiated tax cuts need to be re-evaluated for the next budget. File photo/The Associated Press

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Decisions on the 2011 tax cut package, the largest in Maine history, will be forced by a projected $756 million revenue deficit for the next two-year budget. The bill for approximately $342 million of the tax cuts comes due in 2013. That means lawmakers will have to decide how they plan to pay for the cuts in the face of grim revenue forecasts, complicated by uncertainty over how Congress will handle the so-called “fiscal cliff.”

Incoming House Speaker Mark Eves, D-North Berwick, has indicated that the unfunded tax cuts need to be re-evaluated for the next budget.

It’s unclear how Democrats will proceed, but whatever they do may require support from Republicans if they encounter a veto threat from Gov. Paul LePage. LePage, who proposes the two-year budget, has not made any announcements about the tax cuts, but the Republican governor has firmly adopted the doctrine of simultaneously reducing taxes and government programs.

It’s possible that LePage will pressure the Republican minority to hold the line on the tax-cut package while cutting other government spending, such as MaineCare, the state’s Medicaid program that provides health insurance for low-income residents.

Democrats are unlikely to go along with MaineCare reductions, which they campaigned against en route to retaking the State House. However, the new Democratic majority is in a tricky position, given that many Democrats supported the tax-cut package in the 2011 biennial budget in exchange for preserving social services programs.

Politically, repealing the tax cuts may also be difficult, because that could expose Democrats to criticism that they are raising taxes. While the campaign rhetoric centered on the tax cuts for wealthy Mainers, the package also included some reductions for middle- and low-income residents.

Overall, the cuts lowered the top income-tax rate from 8.5 percent to 7.95 percent and eliminated income taxes for about 70,000 Mainers.

Additionally, repealing the reductions is also unlikely to win the support of Republicans, and thus ensure a veto-proof majority.

Overriding a governor’s veto requires two-thirds support of each chamber of those lawmakers voting and present. Assuming all members of the 151-member House were present for a vote, an override would require support from 101 lawmakers. In the 35-member Senate, an override would require 24 senators.

All but one race has been finalized, and Democrats currently are in line to hold a 90-58 advantage in the House with four unenrolled members. Democrats will hold a 19-15 edge in the Senate, with independent Sen. Dick Woodbury of Yarmouth caucusing with both parties.

Neither margin is enough to override a LePage veto without Republican support.

It’s possible that Democrats could propose delaying the tax cut on high-income Mainers until the state could pay for it. However, it’s not clear if that tack alone will garner enough support.

Newport Rep. Kenneth Fredette, the incoming House Republican leader, said he would let the Legislature’s budget-writing committee deliberate before discussing negotiable items.

Fredette noted that lawmakers were also confronted with a more immediate fiscal problem. A recent report by the state’s revenue forecasting commission showed that revenues were $26 million off pace for the current budget.

Lawmakers are concerned that the downward figures signify a trend.

According to the forecasting commission report, sales tax collections were $13 million below estimates and corporate taxes were $14.5 million down.

Rep. Peggy Rotundo, D-Lewiston, one of the lead Democrats on the Legislature’s budget-writing committee, said the lower-than-expected revenues, combined with $10 million in Medicaid cuts passed by the Republican majority but unlikely to receive federal approval, will most likely necessitate a supplemental spending plan to balance the current budget.

Fredette agreed, saying the supplemental budget could range anywhere between $50 million and $200 million depending on what happens with federal revenue reductions via the “fiscal cliff.”

“It just goes to show how delicate the economy is right now,” Fredette said.

He added, “To say this is serious is an understatement.”

LePage’s finance commissioner, Sawin Millett, told Capitol News service that the governor’s two-year budget will be presented to the Legislature in early January and that a supplemental plan to plug the gap in the current budget would follow.

Budgetary matters could set the tone for a legislative session seemingly set up for conflict between the Democratic majority and LePage.

Democrats haven’t announced any policy initiatives, but have hinted that work force development, education and health care are on their wish list.

Changes to the Republican-backed health insurance law that was passed over the objection of Democrats in 2011 will likely be proposed. Democrats campaigned against the law, which early indications show has driven up rates for some small-business owners and rural residents.

Democrats may seek changes to the rules that have prompted those increases. It’s too early to tell whether Republicans will support the changes, but several lawmakers have noted that the rate increases in the current law had hurt them in their districts.

Democrats may also seek to change a portion of the law that bolsters the review process for proposed rate hikes by insurance companies.

Newly elected lawmakers will be sworn in Dec. 5. Committee assignments will be determined before the Legislature convenes in early January.

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